Benefits of NPS
Tax benefits to employees on Self-Contribution
Employees contributing to NPS are eligible for following tax benefits on their own contribution:
- Tax deduction up to 10% of salary (Basic + DA) under section 80 CCD(1) within the overall ceiling of ₹1.50 lakh under Sec 80 CCE.
- Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of ₹1.50 lakh under Sec 80 CCE.
Tax benefits to employees on Employer's contribution
- Section 80CCD(1): Employee contributions eligible for deduction up to:
- 10% of salary (Basic + DA)
- 20% of Gross Income for self-employed
(Subject to Rs. 1.5 lakh limit under Section 80CCE)
- Section 80CCD(1B): Additional tax deduction of Rs. 50,000
- Section 80CCD(2): Employer contributions deductible up to:
- 10% of salary for employees under Old Tax Regime
- 14% of salary for employees under New Tax Regime
Tax benefits to self-employed
Individuals who are self-employed and contributing to NPS are eligible for following tax benefits on their own contribution
- Tax deduction up to 20 % of gross income under section 80 CCD (1) with in the overall ceiling of ₹1.50 lakh under Sec 80 CCE.
- Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of ₹1.50 lakh under Sec 80 CCE.
Tax benefits on partial withdrawal from NPS account
Eligible for tax exemption on the amount withdrawn upto 25% of the self contribution, on such terms and conditions as may be specified by PFRDA under section 10(12B).
Tax benefit on purchase of Annuity
Eligible for tax exemption on purchase of annuity upon attaining the age of 60 or superannuation under section 80CCD(5). However, the subsequent income received from annuity is subject to tax under section 80CCD(3).
Tax benefit on lump sum withdrawal
Eligible for tax exemption on lumpsum withdrawal of 60% of accumulated pension wealth upon attaining the age of 60 or superannuation under section 10(12A)
Tax Benefits to Corporates/ Employers
Employer contributions to NPS (up to 14% of salary, i.e., Basic + DA) are treated as a business expense and can be claimed as a deduction under Section 36(1)(iv)(a) of the Income Tax Act, 1961.
Important FAQs
No tax benefits are available on contributions made in an NPS Tier-II account.
No tax rebates/special treatment for the gains arising out of investment in NPS Tier-II. The taxation as per the marginal tax rate will be applicable to you.